GREEN4SEA Conference & Awards

5 Apr 2017
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GREEN4SEA Conference & Awards

5 Apr 2017
Learn More

An operator’s concern about 0.5% sulphur cap from 2020

Poul Woodall, Director Environment & Sustainability, DFDS A/S, presented “An operator’s concern about 0.5% sulphur cap from 2020” at the 2017 GREEN4SEA Conference. Mr. Woodall shared DFDS views on the challenges ahead now that IMO has decided that the 0.5% Global Sulphur Cap will be effective in three years. Among the important issues for consideration will be the quantity, quality and cost of existing fuels in 2020, the logistics, the scrubber uptake and the refinery dilemma. At his presentation, Mr. Woodall highlighted that industry needs to gain experience feedback from the SECA implementation and look out for emerging issues, to ensure compliance in the most cost-efficient way.

The implementation of the 0.5% Sulphur Global Cap is set for 2020, thus, ship operators have less than three years to get prepared.  Under the new global limit, ships will have to fuel oil on board with a sulphur content of no more than 0.50% m/m.  Ships can meet the requirement by using low-sulphur compliant fuel oil. An increasing number of ships are also using gas as a fuel; also methanol is being used on some short sea services. Furthermore, ships may meet the SOx emission requirements by using approved equivalent methods, such as Exhaust Gas Cleaning Systems.

All of these options have their own benefits and challenges, and owners need to examine issues such as upfront investment versus long term savings, running cost, operational complexity, regulatory demands associated with each option, and availability of the right fuels and technologies to meet their requirements. Therefore, this landmark decision entails many challenges for the industry and raises the following questions for consideration to shipowners regarding the fuel availability at the time of implementation:

How much fuel is needed?

Talking about the fuel availability, many believe that the marine market is currently somewhere between 250- 300 million tons a year. For the fuel availability in 2020, we need to consider that there are vessels which will use HFO, LNG or scrubbers. Predictions regarding how many ships will have scrubbers by 2020, find around 4,000 vessels. If we consider that as of today, 440 vessels are already being fitted with scrubbers, from now on and until 2020, we need to have 3-4 ships fitted every day with scrubbers. Additionally, HFO will be supplied to ships and LNG as well. Currently, there are 100 LNG ships, In any case, the majority of  the rest vessels will have to use 0.50% Sulphur fuel which this give us a good prediction of 150 – 200 million tons fuel availability. However, it is important to know what the refineries expect.  

It is not clear whether the HFO will be a blended product or a refined product. We do not even know what product we are going to put in our engines. But, somehow, this product has to be there. There are about 750 refineries in the world. A lot of them can’t really change overnight, so the rest of them have to produce this additional fuel which is sizable but in the global picture only a small portion.

When the low Sulphur fuel was implemented on the 01 January 2015, it was about 20 million tons that had to be converted to something else; that went pretty well. Therefore, the production will be available, but nobody really knows for how long the demand will exist.

Where is the fuel going to be produced?

It is a fact that, when you produce more distillates, you have more carbon emissions from the refineries. Certainly the fuel is not going to be produced in Europe because of restrictions regarding carbon emissions. Thus, this sounds great for the tanker market.  Distillates products will be transported into Europe and residual products out of Europe. At the other end of the spectrum, this is less good for the climate.

What will be the Scrubber uptake?

The two studies that were presented to MEPC when it decided on the 2020 Sulphur Cap assumed that there will be more than 4,000 ships fitted with scrubbers by 2020. There are however some grey clouds on the horizon. Firstly, it is an expensive investment and secondly there are some uncertainties around the scrubbers and what will be allowed in the future. Unfortunately the legislation doesn’t have any grandfathering rights incorporated. Therefore, it might be a bit of a risk to go early on scrubbers.

How is it going to cost?

Do refineries invest billions of dollars to make a product that perhaps only have a limited lifetime? Switching production in a refinery takes a long time, and it cost a lot of money. We haven’t seen anybody preparing to do this switch so will we have this extra product available by the 1st of January 2020?

The 0,50% sulphur product is really not a product that is on the market today. Looking at todays cost difference between fuel oil and gas oil it is not unlikely this could go up to about 400 dollars in difference between the residual fuel and the new product. This would probably only be for a limited period around 2020, but 400 dollars/ ton is a lot of money for a ships.

How are we going to deal with ISO 8217?

ISO has the 8217 standard but it is not going to be revised until after 2020 so the new fuels will not have a common reference line.  This may create confusion because operators need to submit a lot of details to both EU and IMO on CO2 emissions regarding which kind of carbon effector is needed; this is something that already is established for standard products. It is unfortunate this is not clarified before implementation.

Will we have HFO for the scrubber ships after 2020?

Probably yes, and probably HFO for the scrubber ships until 2020 will be cheap. The residuals at least in Europe will have to compete with the coal market. Thus, if we have scrubber onboard ships, we may have a short period of fairly good cost saving opportunity.

The “Switch”

The Switch is considered as the New Year’s rush for product. On 31st of December you want HFO, 1st of January you want gas oil.  Say a ship is burning 30 tons/day. If they switch on the 30th of December rather on the 31st, it’s 10.000 dollars. That’s just one ship, one day. However, are they ready for the Switch onboard? There are a lot of tank cleaning, pipes etc. to be ready and how much in advance can we actually prepare for this. Do we need external help? There are a lot of ships in a very short period of time that needs to go through this process. On 1st of January there are a lot of ships with a lot of residual fuels in their tanks. Are we going to land it all? Are we going to be allowed to burn it for a couple of days? Or will we burn it and assume that nobody will notice it? Of course those tanks with the residuals then need to be cleaned as well.

Policing

The last issue discussed was the policing effort.  Are flag states ready for the law enforcement? In 2015, they were not ready for it. There were no guidelines on how many samples to be tested in 2015. That only came in 2016. Now, many countries will have problems with their legal system. For example in Sweden, although a ship is found non-compliant, you go to court and then you find out that the legal system doesn’t work for this. So, although you are non-compliant, they can’t fine you because they have to prove that you did it deliberately.

As far as sulphur inspectors are concerned, this is not just something that you go online and get a certificate. There has to be a lot of people for testing. But who will train those? Who will prepare that? Who will make the budget in the national authorities so that we will have this policing force in place so we ensure level playing field for the entire industry. And who is actually the policeman out on the open sea? The Flag States?

Finally, in terms of the national issue of penalties, in the EU we have seen penalties by country differing from a few hundred euros to imprisonment of the senior offices. How is this going to be in a global scale? The world and the industry may be not ready for this.

Above text is an edited article of Poul Woodal’s presentation during 2017 GREEN4SEA Conference & Awards

You may view his presentation video by clicking here

 

Click here to view all the presentations of 2017 GREEN4SEA Conference & Awards

 

The views presented hereabove are only those of the author and not necessarily those of  GREEN4SEA and are for information sharing and discussion  purposes only.

Poul Woodall, Director Environment & Sustainability, DFDS A/S

Poul Woodall has over 40 years of experience within the maritime and transport industry. The first 36 years were spent A.P.Moller-Maersk in various positions, mainly within the container and Ro/Ro segments. His career includes 17 years overseas experience with postings in Asia, The Middle East and Europe.

Since 2010, Poul has been with DFDS A/S in Copenhagen and in June 2013 he was appointed Director for Environment and Sustainability for the DFDS Group.  Poul Woodall has a degree from Copenhagen Business School supplemented with management education at Insead and Stanford University. Poul is in the steering committees of the Trident Alliance and Green Ship of the Future and on the advisory board of IMPA-act and an affiliate Member of IEMA. Marine environment policy work is conducted through his affiliation with Interferry and various ESSF working groups in Brussels.

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